Tourism Doing Business

Tourism Doing Business Investing in Dominican Republic

Investing in Dominican Republic

"This guide provides valuable information on the benefits, conditions for foreign direct investment and its value proposition as a leading investment country in Central America and the Caribbean, and a regional tourism leader that has achieved an extraordinary performance despite the pandemic."

Zurab Pololikashvili,
UN Tourism Secretary-General

"The Dominican Republic is a great country and a great investment destination. We are commited to lead the Dominican Republic towards a country of more sustainable growth, with a favourable business environment, sustained by transparent and inclusive processes that guarantee the collective progress of our entire nation and the development of its companies"

Luis Abinader,
Presidente de la República Dominicana

Introduction

This first Tourism Investment Guide developed for the Dominican Republic is the result of a coordinated effort by UN Tourism, the Ministry of Tourism (MITUR) and the Dominican Republic Export and Investment Centre (PRODOMINICANA). This guide provides valuable information on the conditions in the Dominican Republic for foreign direct investment and presents the country’s value proposition as a leading investment country in Central America and the Caribbean, and a regional tourism leader that has achieved an extraordinary performance despite the pandemic.

The Dominican Republic has had an outstanding performance during the pandemic; despite the economic contraction of 2020; foreign direct investment (FDI) in the tourism sector reached US$942 million. In 2021, the economy of the Dominican Republic recovered and reached pre-pandemic growth. About 38% of said recovery was the product of the tourism sector, recovering more than 300,000 jobs; being one of the first countries to reopen its borders.

Summary

The Dominican Republic demonstrates one of the most attractive destinations in the Central American and Caribbean region. Indeed, trailing only Panama, the Dominican Republic was one of the fastest growing economies across Latin America, Central America and the Caribbean prior to the pandemic. Within the periods of 2015 to 2019 the country grew at an average rate of 6.1% per year, compared to the region’s average yearly growth rate of 3.1%. In general, the country experienced an average annual gross domestic product (GDP) growth rate of more than 5% consistently for more than 25 years with modest procyclical fiscal deficits and a slowly rising public debt/GDP ratio.

In addition, during this period the Dominican economy has been characterized by its openness to foreign investment and its trade integration with the rest of the world. Consequently, the country is becoming the main recipient of Foreign Direct Investment (FDI) in the entire Caribbean with FDI being one of the main sources of foreign exchange earnings for the country. In other words, according to the Central Bank of the Dominican Republic foreign exchange income derived from FDI from 2010 to 2020 generated average of US$ 2.539 billion per year and FDI in the tourism sector accounted for 21.35% of the period’s accumulated FDI flows. The figures of greenfield investments of FDI show that the Dominican Republic has attracted more than 26 projects receiving nearly US$ 5.7 billion in tourism capital investments in the region between 2016 and 2020, trailing Mexico.

Regarding the GDP contribution by sector, the economic fabric of the Dominican Republic has changed significantly, going from an economy with more than 50% of the GDP generated by the primary (agricultural activity, livestock, forestry and fishing), and secondary sectors (mining, manufacturing, construction, manufacturing of beverages and tobacco products), to an economy driven by the service sector. In 2019 the service sector generated 61% of GDP and proved more than 70% of country’s employment. Given the latter, the tourism sector has developed into a key pillar of the country’s economy, generating 15% to 16% of GDP, including its indirect impact.

However, recently, the COVID-19 crisis has inevitably affected the economy of the Dominican Republic. In 2020, the pandemic generated a decline of -6.7% in GDP while the fiscal deficit widened to 7.7% of GDP, well above the 2.2% projected for that year. Nevertheless, despite this global shock the Dominican Republic has demonstrated an outstanding performance during the pandemic. Indeed, the economy of the Dominican Republic recovered and reached pre-COVID-19 economic growth in 2021 with the tourism sector accounting for about 38% of this recovery. On the other hand, foreign direct investment in the tourism sector reached US$ 942 million, making the tourism sector the largest recipient of FDI in the Dominican Republic in 2020.

The country’s strong economic recovery is considered a result of the Plan for the Responsible Recovery of Tourism, implemented in August 2020, the successful vaccination campaign as well as the expected growth of the United States economy. The latter provides the main source of income from family remittances and expenditures generated by tourists. The plan also made it possible for the Dominican Republic to become one of the first countries to reopen its borders for tourism before the rest of the region, enabling the sector of Hotels, Bars and Restaurants to grow at 32.1% in 2021.

Conclusions

  • The Dominican Republic has had an outstanding performance during the pandemic, reaching records in market opening and recovery times, as well as hotel occupancy metrics. However, the tourism sector needs to design a more innovative and sustainable value proposition to diversify the offerings of the tourism cluster, and enhance spillover effects in other relevant sectors for the economy, which will generate better quality jobs and, in addition to producing new cross-sector opportunities for business.
  • The legal framework relating to FDI in the Dominican Republic is broad and of sufficient quality regarding the regulation of corporate entities and their establishment, as well as taxation and benefits of a generic or sectoral scope. However, it is necessary to modernize and strengthen the legal institutional framework to streamline processes and execute mercantile rulings, investor protection and insolvency resolution.
  • The digitization of the tourism value chain is imperative, especially for Small and Medium Enterprises (SMEs), which will allow the acceleration and digital transformation of the sector. Indeed, SMEs may need to adopt digital tools and generate technological capabilities to attract and interact with visitors, as well as promote and position tourism destinations through a digital presence.
  • The Dominican Republic should continue promoting green and sustainable financing instruments and schemes vis-à-vis the tourism sector. This will allow destinations to be conserved as natural and sustainable assets and enhance the value of local experiences and environmental sustainability. The aforementioned enables the development of a different value proposition and the alignment of prioritized strategic projects in the pipeline of investments and new developments.
  • The pandemic has highlighted the challenge of designing specialization and talent training mechanisms to promote quality jobs in the value chain of the tourism sector, and address existing inequalities within the sector. In this new context, the tourism sector in the Dominican Republic must develop talent and specialization of its subsectors through innovative projects and business opportunities that attract FDI. Consequently, this will allow the generation of quality jobs, mitigating the impact of future crises and/or demand drops.